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Print articleInternational Football Player Transfers: A Manager's Perspective
May, 2013 -
1. Overview
In accordance with theWorld Football Association’s, FIFA’s requirements, (consistent) time periodsfor the transfer of players have been established within the Union of EuropeanFootball Associations (UEFA). These time periods exist to ensure that the transferwindows of individual Football Associations coincide with each other and inturn to guarantee equal opportunities for each individual club. Accordingly, inGermany,any player transfers must take place in either of two transfer windows, between1 July and 31 August (summer) or between 1 and 31 January (winter).
It is against this backdropthat this article sets out the intricacies of football transfer management,specifically from the perspective of a club manager and a lawyer. In thisrespect, the article outlines the different “stages” (preparatory and course ofaction) involved in an international player transfer (for instance, from Polandto Germany); the requisite agreements involved (transfer agreements,agent/broker agreements, player contract); as well as licensing issues(eligibility to play) and exceptional circumstances (loan/release of players,termination agreements) that may arise in this area. Additionally, this articledeals with issues relating to training compensation, transfer fees and“illegal” transfers (e.g. transfer of a player in breach of contract), whichall play an important role in the dynamics of football transfer management.
2. International transfer of players – Outline
The following sectionoutlines the preparatory stages and the general course of action to be followedin respect of an international transfer, of a player from Poland (in the 1st league) to Germany(Bundesliga) e.g. (current example is the transfer of Artem Rudnev from KKSLech Poznan SA to the Hamburger Sport-Verein e.V.).
a. Preparatorystage
If a German footballclub (or corporate entity) intends to engage a professional football player whois at that point in time playing for a Polish football club, the interestedclub is obliged to inform the player’s current club in writing about itsintention before it enters into negotiations with the player (Art. 18 of theFIFA Regulations on the Status and Transfer of Players, hereinafter referred toas FIFA RSTP). In Germany,this provision is also set out in § 5 No. 1 of the German statute on players’licence regulations, namely Lizenzordnung Spieler (hereinafter referred to asLOS). The LOS states that the criteria as against which licensed clubs issuelicences to players are laid down by Die Liga – Fußballverband e.V.(hereinafter referred to as the Ligaverband). The DFL Deutsche Fußball LigaGmbH, i.e. the German Football League (DFL), has entrusted the Ligaverband withits executive management. The interested club is only permitted to make contactwith the player (or his agent or members of his family) after it has informedthe player’s current club in writing. In practice, no manager adheres strictlyto this requirement, particularly since infringements of such are difficult toprove and are not even seriously pursued or sanctioned! If the player is alsointerested in potentially joining the new club, the new club will enter intonegotiations with the current/former club.
b. Course of action for transfer
The earliest point intime at which the interested club is permitted to approach the player’scurrent/former club is six months prior to the transfer period. This plays onlya minimal role in European professional football, since the transfer periods inGermany and in the main European leagues are from 1 July to 31 August (summertransfer window) and from 1 January to 31 January (winter transfer window)which means that the entire year is in fact covered. The transfer windowsapplicable to other clubs differ from these; e. g., the winter transfer periodin Poland ends on 28February and in Ukraine on 1March, whilst in Sweden and Norway it endson 31 March.
The transfer periods inGermany end at 6pm on the last day of each transfer period (i.e. on 31 Augustand January) – this is not specifically provided for in the FIFA regulations.Furthermore, at the latest by 12pm on the same day players should have beenregistered or placed as a professional on the transfer list (available to thepublic in Germany); contracts can simply be submitted to DFL by 6pm at thelatest. Transfers are not possible after these deadlines and player permitswill then only be issued in the following transfer window. The only exceptionbeing where a player is already without a team (i.e. without a contract) on 1July and misses the summer transfer window (deadline of 31 August), in whichcase he shall be eligible to be signed up during the current season. This ruleonly applies until the expiry of the winter transfer window (and so only forthe first half of the season) – from 1 February a player without a contract canno longer be signed up to a contract. In practice, however, contractualnegotiations are often concluded even before the player is placed/registered onthe transfer list!
The transfer anticsassociated with the transfer of the player Maxim Choupo-Moting, from Hamburg to Cologneat the beginning of 2011, are a good indication of how seriously the DFL treatsthe subject of transfer windows. Allegedly, problems experienced during thefacsimile transmission of necessary documents were to blame for not meeting thetransfer deadlines. Choupo-Moting and the respective clubs in Hamburg and inCologne had come to an agreement on the last day of the transfer window but,unfortunately, the fax sent by Choupo-Moting’s father and adviser was notreceived in time by the potential new club’s branch office in Cologne. The“suspect” at fault was clearly a paper jam in the fax machine. Unfortunately,the Cologne office was only able to forward the documents to DFL minutes afterthe transfer deadline.
3. Requisite agreements
Agreementsrelated to the transfer process include:
· transferagreement;
· terminationagreement;
· player contract (licence playeragreements for professional football players); and
· agent/broker agreement (between theclub and the player’s agent).
Which contract is to beconcluded and at what point in time is not at all prescribed. In fact, inpractice these contracts tend to be negotiated/concluded simultaneously.Following the text-book approach, it would seem logical to start with a mutualunderstanding between the clubs (transfer agreement), followed by a terminationof the former player contract (termination agreement) and the conclusion of anew contract (in Germany:licence player agreement for a professional football player). In the event thatthe player is – as is almost always the case – (also) represented by an agent,it would then also be advisable to enter into an agent/broker agreement betweenthe club and the player’s agent. The different agreements are dealt with infurther detail below:
a. Transfer agreement
The key element in aplayer transfer is, of course, the transfer agreement, which is entered into bythe old and new club.
aa. Transfer rights
A transfer right is nota licence. However, a player cannot change clubs (in other words, will not beeligible to play for a new club) before the contract with the former club hasbeen terminated or has expired or if it is due to expire in the following sixmonths. In fact, the player can only be placed on the transfer list and thetransfer will only be formally completed with the declaration of release fromthe former club. Art. 5 FIFA RSTP provides that a player is only eligible toplay if he is registered solely in one association, with one club. So, inactual fact, one could say that a right of transfer lies with thecurrent/former club, because the decision about whether to consent to both anearlier termination of the player contract and to a registration of the playerwith a different club rests solely within its hands.
In view of marketconstraints (such as limited income from television, sponsors and viewerlevels), alternative models for financing player transfers, through thirdparties that are not associate with clubs, are becoming a more frequent topicof discussion. Quite aside from the question of whether, within the context ofassigning transfer control, there can be a legally binding possibility toassign transfer rights under national (contract) law (in Germany, this would bepursuant to §§ 311, 241 of the German Civil Code (BGB)), which – pursuant to § 398BGB – would be imaginable by way of surrendering all claims to transferproceeds; there are also two particular legal problems related to the footballassociation level. On the one hand, legal registration with associations (knownas “federal rights”) are to remain a matter specific to clubs even if it werepossible to surrender the right to receive transfer fees (known as “economicrights”). On the other hand, the influence of third parties is strictlyforbidden and is subject to disciplinary measures under Art. 18bis FIFA RSTP:
“1. No club shall enter into a contract which enables any other party tothat contract or any third party to acquire the ability to influence inemployment and transfer-related matters its independence, its policies or theperformance of its teams.
2. The FIFA Disciplinary Committee may impose disciplinary measures onclubs that do not observe the obligations set out in this article. ”
bb. Content/legal effect requirements
With the aforementionedbackground in mind, the main objective of a transfer agreement is to govern thefollowing points (conditions for a transfer to be valid):
· terminationof player contract with the former club;
· theconclusion of a player contract (or, in Germany, a licence player agreement)between the new club and the player;
· proofof fitness and capability to play professional football, by way of a medicalsports examination (under § 2 No. 4 LOS);
· issueof a residence permit or work permit;
· issueof a player permit by the Ligaverband/DFL in accordance with § 13 LOS;
· non-disclosureagreement (contractual penalty may apply in the event of breach);
· additionalreference to applicable association rules/bylaws;
· wherethe loan of professionals is concerned: the terms of the return schedule of theoutbound player should be agreed;
· declarationof release from the former club relating to the respective player; and
· theprovision of a transfer fee and, if applicable, training compensation.
The part of the transferagreement that is most essential to the former club is, of course, that whichgoverns the transfer fee. This can either be expressly stipulated in theagreement or it can be negotiated freely and independently. Any room formanoeuvre is also influenced by the possible methods and arrangements forpayment of the transfer fee. Aside from an upfront and immediate payment of theentire fee, i.e. a lump sum payment, (in addition to value added tax), it isalso possible to agree to payments in instalments. In addition to such a fee,performance-related bonuses are often agreed upon, whether it is for reachinginternational competitions or as an incentive for winning titles. Often, theformer club secures itself a share of the profit in the event of a wintertransfer.
cc. Training compensation pursuantto Art. 20 FIFA RSTP
Training compensation isavailable, in addition to the transfer fee, in accordance with Art. 20 andAnnexe 4 of FIFA RSTP. This is to be paid – with very few exceptions – if theplayer:
· signshis first contract as a professional; and
· eachtime a professional is transferred until the end of the season of his 23rdbirthday (whether the transfer takes place during or at the end of the player’scontract, or in the event of a loan).
More detailedparticulars about training compensation (including its calculation) can befound in Annexe 4. As a general rule,calculating the training compensation is based on the (training) costs thatwould have been incurred by the new club if it had trained the player itself.The amount payable is calculated on a pro rata basis according to the period oftraining that the player spent with each club since the season of his 12thbirthday, These notional training costs are pre-determined (see FIFA CircularNo. 1264 of 19 May 2011), namely by the national football associations, who areunder a duty, in accordance with their respective confederations (such as AFC,CAF, CONCACAF, CONMEBOL, OFC, UEFA) to classify their clubs into categories I,II, III or IV. The following amounts of training compensation are specified forthe different categories in the UEFA confederation:
· Category I: € 90,000
· Category II: € 60,000
· Category III: € 30,000
· Category IV: € 10,000
Should a player betransferring from a club with a lower category than that of the club he istransferring to, then the applicable training compensation is calculated bytaking the average value of training costs for both clubs. And vice versa(transfer from a club with a higher category to one with a lower category), theapplicable training compensation is calculated by only taking into account thetraining costs of the club within the lower category. The only exceptions,under which no training compensation is payable, are where either the formerclub has terminated the contract without a valid reason, the player changes toa club in category IV or upon transfer, a professional player is reacquires thestatus of an amateur player. In the event the player re-registers as aprofessional within 30 months of being reinstated as an amateur, the new clubhas to pay a training compensation according to Art. 20 FIFA RSTP.
dd. Solidarity mechanism (Art. 21 FIFARSTP)
A further issue toconsider, besides training compensation, is the solidarity mechanism set out inArt. 21 and Annexe 5 of FIFA RSTP. According to these provisions, for every transfer before the expiry of aplayer’s contract, irrespective of theplayer’s age, any and each club that has contributed to his education andtraining (where the player was registered between the seasons of his 12th and23rd birthdays) shall receive a 5% of any compensation (less the trainingcompensation) paid by the new club to the player’s former club. This solidaritycontribution reflects the number of registration years on a pro rata basis: 0.25%of the total compensation payable for the seasons from the player’s 12thto 15th birthdays, and 0.5% for the seasons from the player’s 16thto his 23rd birthdays (pro rata calculation if registration with aclub was for less than one year).
The FIFA compensationmodel, in principle, is consistent with European law. The European Court ofJustice (ECJ) in its decision C-325/08 of 16 March 2010, had to assess the caseof a so-called “joueur espoir” (Oliver Bernard a.k.a. Bosman II). Pursuant toFrench law, Bernard was under an obligation to sign, at the end of histraining, a professional contract with the club that had provided the training(Olympique Lyonnaise). Following Bernard’s refusal to do so (he preferred toaccept an professional contract offer in England), the French court in thefirst instance ordered Bernard (and the English club) to pay damages. The courtof appeal referred to the ECJ the question of whether the scheme under nationallaw constituted a restriction on the player’s right to freedom of the player,and if so, whether such a restriction was suitable and proportionate and couldbe justified by the need to promote and encourage the recruiting and trainingof young professionals. The ECJ held that in order to be able to answer thisquestion, account must be taken of the specific characteristics of sport ingeneral, and football in particular, and of their social and educationalfunction. In that regard, the ECJ affirmed that the prospect of receivingtraining fees is likely to encourage football clubs to seek new talent andtrain young players. It therefore followed that a scheme providing for thepayment of compensation for training where a young player, at the end of histraining, signs a professional contract with a club other than the one whichtrained him, can – in principle – be justified by the objective of encouragingthe recruitment and training of young players. The only requirement here isthat such a scheme must be actually capable of attaining that objective and beproportionate to it, taking due account of the costs borne by the clubs intraining future professional players, as well as those who will never playprofessionally.
b. Termination agreement
The transfer regimerequires that the former club and the player mutually agree to terminate the(player) contract in effect between them.
A player is onlypermitted to enter into a contract with a club other than the one he iscurrently signed to, if his contract with the current/former club has eitherexpired or is due to expire within the next six months (pursuant to § 5 No. 1LOS, but compare Art. 13 FIFA RSTP). This termination agreement is of immensesignificance for the player, since he is strictly forbidden from concludingcontracts with several clubs within any one season (in accordance with Art. 5 para.2 FIFA RSTP and § 5 No. 9 LOS). In fact, if he does so, a player couldeven be subject to criminal sanctions.
Provided there are nospecific contractual provisions to the contrary, German employment law prohibits an ordinary terminationof a fixed-term contract during its contractual term (cf. § 15 para. 3 of theGerman Part-Time and Limited Term Employment Act, the Teilzeit- undBefristungsgesetz (TzBfG)). If a club wishes to sign up a player before thefixed-term period of the player’s contract has expired, that club will have to“buy the player” out of his current contract. An exception to this would arisewhere a so-called “release clause” is provided for in the contract. Usually, inthis case, the player will have a special right to terminate the contract inthe event that he receives an offer to join a particular club or a club whichis part of a particular foreign league.
When structuring atermination agreement, the national regulations of the country of the formerclub should apply (in our example that would be Polish law). German lawstipulates, first and foremost, that such a termination agreement must be inwriting. Freedom of contract, a principle that is protected by the GermanConstitution, applies also. From the club’s point of view – but also from theplayer’s (i.e. danger of unemployment) – it is essential that the terminationof the old contract is made contingent upon the valid formation of an effectivecontract with the new club (in our example, this would be a valid licenceplayer agreement with the German club).
c. Player contract (licence playeragreement)
On 19 April 2012, theEuropean Commission and leading football associations signed the Agreementregarding minimum requirements for standard player contracts. The signatoriesin the football sector include football associations such as UEFA, theInternational Federation of Professional Footballers (FIFpro), the EuropeanClub Association (ECA) and the European Professional Football Leagues (EPFL).This Agreement provides that player contracts should met certain minimumstandards, for instance, they should be documented in writing and shouldexpressly include particulars of both the club’s and player’s rights andobligations, and include provisions relating to remuneration, health insuranceand social insurance contributions. In particular, player contracts shouldrefer to the duty of players to participate in training, to maintain a healthylifestyle and to comply with disciplinary procedures. Standard contracts shouldalso include provisions dealing with dispute resolution and the governing lawand jurisdiction.The aforementioned requirements are already met in the current version of thetemplate contract produced by DFL:
aa. Primary obligation
The player has the(primary) obligation to perform the contractually agreed “work”. Thisobligation does not only cover the obligation to participate in football games insofar as he is required to do so bythe coach, but also encompasses the obligation to attend courses of study andto participate in training,interviews and all other events related to the game or to preparation for thecompetition – whether or not it is planned that the player will in fact play inthat particular game. The club can determine the content and extent of suchobligations by virtue of its inherent ownership rights (i.e. authoritativepower) over the player’s services.
The wording in § 5 of the DFL template contract reads as follows:
“The nature and scope of use and exercise of function by the player areto be determined by the executive body or by an officer designated by suchbody. The player must perform…reliably and obey all instructions given to himby virtue of statutory instruments or by a person that has been deemedauthorised by the executive body – in particular, a coach – particularly withregard to training, game preparation and his participation in the game.”
The club’s ownership rights over the player’s services also includesthe decision to not place a player in the club’s first team but instead in itssecond team, whether or not this team actually plays in the amateur league.This should most certainly be the case if it would assist the club to arousethe player’s interest in playing at a higher level, since the player would thenexpect to be placed in the first team.
The wording in § 2 sentence 2a) of the DFL template contract reads asfollows:
“If directed, the player is also obliged to play on or participate intraining sessions for the club’s second team if this team plays in the firstleague or in a higher division.”
bb. Secondary obligations
The most importantsecondary obligations are outlined below: The player is free, in principle, toorganise his free time as he wishes. He owes his contractual obligations to hisrespective club solely during his contractual working hours. However, oneexception to this rule is where the player’s “external activities” (free time)could have a disturbing effect on his professional role (i.e. on training, gameplay etc.)
The wording in § 2 sentence 2j) of the DFL template contract reads asfollows:
“...the player is obliged in particular toprepare conscientiously for the entire club’s sporting events. This includes inparticular, the obligation to follow the instructions of the coach in respectof lifestyle choices insofar as such choices reflect on the athleticperformance of the player.”
If a player sustains aninjury during training and is left incapacitated(unable to work), it is in the interests of the club to ensure that the playeris seen and treated by exceptionally qualified medical practitioner, so that itcan return him to the playing field as soon as possible.
The wording in § 2 sentence 2b) of the DFL template contract reads asfollows:
“In the event that he sustains an injury whilst exercising or inrelation to his profession as a professional, licensed football player, theplayer in question must immediately consult a doctor named by the club.”
The provisions inrelation to competition and the ban on accepting bonuses for winning (feespayable upon winning) from those not associated with the club.
The wording in § 2 sentence 2m) of the DFL template contract reads asfollows:
“The player is under an obligation to refrain from placing bets,personally or via third parties, in relation to any game (or any individualpromotional game)or any league table rankings or results relating to the leaguefor which the club is licensed at the respective point in time. The player isalso obliged to refrain from accepting win bonuses from a person that is notassociated with the club.”
cc. Further contractual provisions
Further contractualdetails, as specified under the FIFA RSTP and LOS should also be provided forin the licence player agreement:
The “work permit” (licence issued by DFL) requiredby a player is fundamental. If, at the time of signing a contract, a player isnot yet in possession of such a licence, the club would be best advised to makethe validity of the contract contingent upon obtaining this permit (pursuant to§ 13 LOS) from DFL. If this is not done, and if, contrary to what is expected,the player is not issued with the requisite permit, then the contract willremain effective and so the club will remain under a duty to remunerate theplayer although it is not permitted by law to place him on the field.
Furthermore, it is alsonecessary to include in the contract a provision dealing with the assignment ofa player’s personal exploitation rightsto the signatory club (§ 6 No. 3 LOS). Such a provision will ensure that theclub is permitted to exploit a player’s image individually or as part of thewhole squad and in any form, including virtually. After all, clubs generate aconsiderable income from television marketing! The contract should also referto the services of a licensedagent/broker, if any such services have been engaged (§ 6 No. 4 LOS). As apotential employer, a club should also consider to what extent it wishes todeprive the player of its right to speak, to be interviewed etc. Indeed, thisquestion is of utmost importance when it comes to interviews or writing activities of players. It would be best forthe club to stipulate in the contract that these activities require theirexpress prior consent in order to ensure it keeps at bay any critique in thewrong place and at the wrong time. As we are all aware, it takes just oneopinion, particularly when it concerns an internal team matter that ispublished in the media to taint the general opinion and to cause a stir amongstthe team and even in the life of the association. It is also important to notethe rule that at least whilst carrying out his professional football activitiesfor the club, the player must, only wear the products provided by the official club outfitters.
Valid contractual penalties are of utmostimportance and are strongly recommended. Such penalties may include anythingfrom being excluded from club events to a financial penalty, or these penaltiescan even be combined and effective alongside each other in the contract. Firstand foremost, it is essential here to describe the types of conduct that wouldamount to misconduct and would therefore be penalised. Otherwise the entireclause will not be valid. Furthermore, there must be a fair and proportionaterelationship between the misconduct and the type of penalty to be imposed. Inother words, within a standard contract, a fixed penalty rate irrespective ofthe type of misconduct would not be proportionate (please also refer to item 5).
dd. Contractual term
The contractual term ofthe contract must be agreed to extend to at least the end of the season. Whilstit is usual practice to provide for a permanent contract in a “normal”employment relationship, the opposite is true for licence player agreements forprofessional footballers, which are in general for a fixed-term period. If, forinstance, the player has never before been signed up to a club, the contractterm is limited to a two year fixed period under § 14 para. 2 TzBfG. If it isnot possible to rely on such a limitation based on factual reasons because, forinstance, it is agreed that a player is to remain at a club for a longer periodof time, then § 14 para.1 No. 4 TzBfG (special characteristic of jobperformance) allows a such a contract to exist for longer. This point isdisputed.
It is not usual to agreeupon an ordinary right to terminate the player contract (i.e. at the end of ahalf-season) and, in fact, this is expressly prohibited under German law. Theextraordinary (or exceptional) right to terminate the contract remains unaffected.And so, termination for good cause – the exclusion of which is not permittedunder German law – and termination on other justified grounds (related tosports, in Art. 14, 15 FIFA RSTP) are also applicable to player contracts. Onesuch ground of justification (related to sports) to terminate a contract iswhere a player can prove that he has only been sent out on the field for amaximum of four official matches. However, in relations to this ground, itshould be noted that exceptional circumstances such as a period of injury orsuspension do not count towards any period during which time the player was notsent out on the field.
ee. Remuneration
The issue of remuneration is a flexible one. Itis possible to agree upon any conceivable type of bonus (for example,signing-on fees, fees payable upon winning, payment of a certain amount pergoal scored by a player). However, under German law, the variable part of suchremuneration must not exceed 25% of the player’s total remuneration.Furthermore, with regard to a player’s gross basic salary, § 10 LOS (LocalPlayer rule) should be taken into account:
“1. Clubs and players cancontractually agree to a basic salary and/or a success-based payment. Theagreed gross basic salary of a player must amount to at least 50% (or 30% inthe second Bundesliga) of the income threshold for contribution to thestatutory pension insurance scheme. In order for a player in the secondBundesliga to count towards the number of “locally” trained players pursuant to§ 5a LOS, each player must receive a basic salary of at least 50% of the incomethreshold for contribution to the statutory pension insurance scheme.
2. Players that are injured or sickhave the right to continue receiving payment of their salary in accordance withthe relevant statutory provisions.
3. The provisions of the GermanFederal Holiday Act (Bundesurlaubsgesetz)apply to payment during the player’s contractually agreed holiday allowance.
4. All contractually agreed remuneration shall be gross amounts. The relevantstatutory provisions apply to the deductions of taxes and (a clubs and players’contribution of the) applicable social insurance charges.”
ff. Loan of professionals
Professional footballplayers are often “loaned” by the club they have signed a contract with toanother club. This “loan of professionals” is permitted under Art. 10 FIFA RSTPand is an option for the club should they be looking to “refinance” theplayer’s remuneration or at least part of it. This is a particularly usefultool for a trainer where he does not see a particular player fitting in withhis envisaged game plan. Despite the club’s ownership rights over players’services, it cannot force any player to play for another club – not even for atemporary period of time. The player has no contractual relationship whatsoeverwith a club other than the one he is signed to. In practice, however, a playeris more than willing to take on such an offer to be loaned to another club,where that other club will provide him with the opportunity to play in matches.In this way the player will also be able to increase his value on the market.So, it is evident that we are not concerned here with the supply of temporaryworkers. The club that is “borrowing” the player enters into a separate fixed-termcontract with that particular player and hereby fully assumes the position ofthe employer. Meanwhile, the contract with the original player contract withthe “lending” club is terminated for the duration of the loan. The player is,however, able to rely on a reinstatement clause and is thereby protected asagainst his employer. This reinstatement clause provides that the originalcontract is revived as soon as the contract with the borrowing club comes to anend. Thus, in contrast to a “normal” transfer agreement, where a professionalplayer is loaned out, the transfer rights over that player remain with thelending club.
d. Agent/broker agreement (between cluband the player’s agent)
If an agent is involvedin the transfer of a player, a contract between the club and the agent is to beagreed upon which sets out details about the agent involved and the extent ofhis involvement. The following people may be appointed as agents: aFIFA-licensed agent, a solicitor admitted to practise, the player’s parent, siblingor spouse. It is often the case that several unrecognised agents approach clubsoffering them the services of the same player! From the club’s perspective, itis vital not to respond to such offers hastily (for instance per email) sincethere is no requirement that an agreement between the club and agent must be inwriting. If any form of positive response is provided by the club and even ifit turns out in retrospect that a contract between the club and the agent never(conclusively) existed, the agent could claim under § 354 of the GermanCommercial Code (HGB) for any commission due to him. Therefore, the club’sresponse is crucial in such a situation: if the club is not interested, itshould either not respond at all or explicitly reject the kind offer!
Details of the agent’scommission are, of course, set out in an agent agreement, including paymentarrangements (for example, a lump sum payment or payment in instalments). Inpractice, the clubs prefer a payment model whereby the transfer sum is in linewith actual term of the contract. If, for example, the player signs a contractwith a four-year fixed term, the commission is “earned” separately for each ofthe four contractual years. In this case, the agent receives a commissionpayment once the player has been issued with a permit to play in the firstcontractual year. Subsequent commissions then become due after (!) the end ofeach transfer window (i.e. on 1 September and 1 February). In this way the clubcan minimise its risk of paying the agreed commission to the agent despite theplayer leaving the club (during the open transfer period) earlier than theoriginally agreed contractual term (in the above example, before four years)originally intended four years. A player may also choose to pay his agent. UnderGerman law, professional sportsmen fall under the category of “atypicalemployees” and in such a case, an agent can only be paid a maximum of 14% ofthe employee’s/player’s intended maximum salary (§ 2 of the Agents’Remuneration Regulation (Vermittler-Vergütungsverordnung). A so-called„exclusive manager“, on the other hand, has a far wider scope for negotiatinghis commission. An exclusive manager deals solely and exclusively with all ofthe player’s professional matters. Since it is unlawful for an exclusive agentto receive a commission from both the club and the player, where a club entersinto an agent agreement with such an exclusive manager, it must ensure that theagreement expressly states that the exclusive manager shall only be entitled toreceive a commission from the club.
If the club and agentagree any sum higher than a “usual commission”, then this could be consideredagainst public policy. What constitutes an “appropriate” commission in thegiven circumstances must be considered in light of the general opinion of theparties involved at the time of entering into the contract and in the locationwhere the agent is performing his services under the agreement. In respect ofthe actual amount of the commission, the club may use the guidelines set out inthe Agents’ Remuneration Regulation but it is not bound to do so since thisregulation applies solely to agreements between the player and his agent. Germancase law has defined the boundaries and held that 5% of the annual salary iswhat the court considers to be an “appropriate” commission. This amount followsa recommendation of the German Football Association (DFB). However, usually amuch higher amount of 10% of the annual salary per contractual year is paid ascommission in practice. It is a question of fact whether the amount ofcommission is so high as to be considered against public policy and if so held,the agent agreement between the club and the agent is void from the time theagreement was originally concluded! There is therefore no basis upon which theone could request a reduction of the agreed commission to reflect the currentlyacceptable and proportionate sum instead. A further significant considerationis the agent’s secondary obligations to the club during the player’s contractterm. It is important to ensure that the agent is obliged to refrain from doinganything to endanger the validity of the player contract. In particular, theagent cannot be involved in any attempt by the player to free himself from theclub before the contractual period has expired. It is usually the case that theagent agreement is made contingent upon the following conditions precedent: theplayer enters into a contract with the club and obtains a player permit.Accordingly, a condition subsequent should also be included in the contract inthe event that the contract between the agent and player is no longer valid. Asin all of the other agreements related to the transfer of a player, the agentagreement should also expressly refer to the rules and regulations of therelevant national football association as well as those of UEFA and FIFA.
4. Licensing
Where internationaltransfers to Germanyare concerned, FIFA’s licensing mechanisms and the DFL guidelines are to befollowed.
a. FIFA
For the internationaltransfer of players, an InternationalTransfer Certificate (ITC) is required and, furthermore, the Transfer Matching System (TMS) must befollowed.
aa. ITC
In the event of aninternational transfer the former association (e.g.: the polish footballassociation, Związek Piłki Nożnej, PZPN) has to issue an ITC to the newassociation (in our example: the German football league, DFL, respectively the Ligaverband)concerning the player to be transferred, if the relevant requirements are met.The ITC must be issued free of charge without any conditions or time limit.Pursuant to Art. 9 FIFA RSTP (and § 15 No. 2 LOS respectively) the requirementsfor the issue of an ITC are that the former club does not raise any legitimateobjections against the transfer of the player and that no objections to theplacement on the transfer list exist. Moreover transfer certificates forplayers aged below 12 years are not permitted.
bb. TMS
TMS was introduced byFIFA in response to Art. 18bis of FIFA RSTP, as a way in which to circumventthis provision. TMS enables transparency throughout the entire process ofplayer transfers, including in relation to all related cash flow, control ofagents and the general containment of international transfers involving minors.TMS allows both the electronic application and issue of international transferconsents/certificates through an online portal to which only clubs licensedunder the auspices of FIFA are given access (i.e. no access to third parties,for example private equity funds). Payments of transfer fees are alsorestricted to those made on the system via registered club accounts. A transferreaches its conclusion if the clubs involved in the transfer have both enteredidentical details n the system. As a result, third parties are severely, if notcompletely, restricted in the influence they can exert on any stage of thetransfer process. In 2011, for the first time in history, it became possible toconduct and further, to analyse all transfers electronically. As a result of whicha study of the Global Transfer Market2011 was published (period: 1 January to 31 December 2011: 11,500international transfers; only 10% between two clubs; average transfer fee: €1,1 million / total: € 2,25 billion; average age of a transferred player: 23years; average yearly income: € 183,000.00; most (1500) players from Brasil).
b. DFL
In precise terms, thereis a distinction to be made between the eligibility to play ((§§ 1 to 3 LOS)and a player permit (§ 13 LOS).
aa. Eligibility to play
In order to be eligibleto play in Germany,a player must enter into a licence player agreement for a professional footballplayer – for an indefinite term – with DFL (§§ 1 to 3 LOS). The relevantrequirements are, in particular, that the player already has a contract inplace with a licensed club and can prove that he is fit and capable of being aprofessional sportsman.
bb. Player permit
The new club must applyin writing to the Ligaverband for a permit on behalf of the player pursuant to § 13LOS. The following conditions must be fulfilled in order to receive a validplayer permit:
· eitherthe player must belong to the applicant club, or his registration on thetransfer list has already been published;
· avalid contract between the club and the player must exist and be submitted tothe Ligaverband;
· theplayer should not be subject to any legal restrictions placed on him by anyother club – the principle of priority applies here;
· theplayers fitness and capability to do sport must be proven;
· playersthat are not citizens of the European Union or the European Economic Area mustsubmit a valid residence permit, which is valid for at least the entire playingseason and which entitles the player to exercise his occupation as aprofessional football player;
· theplayer should only have obtained a player permit for a maximum of two clubsbetween 1 July and 30 June of the following year;
· inaddition, the player must confirm that he does not own any shares in anylicensed corporate entity within German registered leagues – although theacquisition of shares in the player’s own corporate entity is permitted, thereis still a duty to notify the DFL of this.
The player permitexpires on the day that the contract with the club or corporate entity expires.Also worth noting is that the player permit may be invalid or withdrawn if theplayer is represented by an agent/broker who is not himself licensed – as isoften the case!
5. Breach of contract
From time to time aplayer steps out on the field who, in order to enter into a more profitablecontract with another club, breaches his valid employment contract (pacta sunt servanda) in accordance withArt. 17 FIFA RSTS. A number of clubs has attempted to rise against thismalpractice by issuing proceedings internally within the FIFA and also beforethe CAS. This has ledto a series of prominent / interesting cases.
a. Andy Webster
AndyWebster is known to be the first player who actually made use of Art. 17 FIFARSTP, which allows a player to unilaterally terminate his player contract after3 years of affiliation with a club, in order to transfer to a club abroad. Theonly compensation to be paid by the leaving player to the former club is theoutstanding salary for the time remaining on his existing contract. Websterterminated his contract with Heart of Midlothian Football Club (Hearts) in thethird year of a four-year contract, and transferred in 2006 to Wigan AthleticFC without Hearts’ consent. Although FIFA approved the transfer on 4 September2006, it was decided that the final compensation sum under Art. 17 FIFA RSTPshould be determined at a later stage. After it became apparent in January 2007that Glasgow Rangers had signed Webster on a loan basis, Hearts filed a formalappeal to the Scottish Football Association (SFA) and FIFA, claiming thatWebster should not be granted permission to play since he had already played inthe Scottish league within the preceding 12 months. However, FIFA admitted thetransfer, as did the SFA subsequently. Nonetheless, FIFA ruled in May 2007 thatWebster had terminated his contract with no just cause and suspended him forthe two first games of the 2007/2008 season and in addition, ordered him to paya fine of £ 625,000 to Hearts. The saga continued in early 2008, when theCourt of Arbitration for Sport (CAS) ruled that Hearts should only becompensated by Webster with a fine of only £ 150,000 (CAS 2007/A/1298, 30January 2008). The court hereby reduced the remuneration to the sum thatWebster would have normally obtained until the time that his contract wasoriginally due to expire.
b. Matuzalem Francelino Da Silva
In thesummer of 2007, just a few weeks before the beginning of the UEFA ChampionsLeague Qualifier, Brazilian midfielder and captain of FC Shakhtar Donetsk of Ukrainealso decided to make use of Art. 17 FIFA RSTP. He terminated his contract inorder to transfer to Real Zaragoza SAD, who therefore did not pay€ 25,000,000 – the transfer price that Donetsk had requested. The CAS ruled that Donetsk was entitled to receive € 12,000,000 ascompensation for breach of contract, taking into consideration the player’ssalary which Donetskhad saved due to the termination (CAS 2008/A/1519, 10 May 2009). The CAS thusrevised the Webster ruling. The judges named a new basis of calculation for thevalue of football services: on the one hand, the difference between theplayer’s salary from Donetsk and from Zaragoza and on the other hand, the factthat the player had “played dirty”, since his termination came at a veryinconvenient time – a few weeks before the start of the qualifying rounds ofthe UEFA Champions League! The court classified his behaviour under Art. 17FIFA RSTP as being “characteristic of sport”. Yet, the factor most essentialfor determining the amount of compensation was a different one: after Zaragoza’s descent from the premier division, Matuzalemwas transferred to Lazio Rome on a loan basis. Lazio paid between€ 13,000,000 and € 15,000,000 to Zaragozaand raised his salary. Since this transfer occurred during the term of contractinitially agreed between Donetskand Matuzalem, the transfer sum was taken into account to determine the valueof Matuzalem’s football services.
c. Tony Sylva
After terminating hiscontract with OSC Lille after the protected period had expired, Sylva signedwith a first league Turkish club, Trabzonspor. The old club refused to approvethe transfer since such a unilateral termination was void under French law. TheFrench Football Association therefore did not issue the necessary InternationalTransfer Certificate (ITC). As a consequence Trabzonspor filed an applicationwith FIFA to oblige the Turkish Football Association to register the player aseligible to play for Trabzonspor. The FIFA Player’s Status Committee acceptedthe application. The FIFA justified its finding by stating that a player can beprovisionally registered as eligible, whereas questions concerning rightfultermination, amount of remuneration and possible sanctions should be left to bedealt with in the main proceedings. Where Art. 17 FIFA RSTP comes into play,FIFA’s only duty is to examine whether the protected period has expired andwhether the former club has received the notice of termination. If this is thecase, FIFA must grant the ITC even againstthe former club’s will. The balance between honouring a contract and thefree movement of labour can only be achieved by these means.
d. Essam El-Hadary
On 1January 2007 the Egyptian goalkeeper Essam El-Hadary signed a contract with theEgyptian club, Al-Ahly, until the end of the 2009/10 season. But on 14 February2008 there was a meeting between the player and executives for both Al-Ahly andthe Swiss club FC Sion to negotiate a transfer. Though the negotiations wereunsuccessful, the executives of FC Sion informed Al-Ahly’s executives aboutsome form of collaboration with the player. Subsequently the player signed acontract with FC Sion until the 2010/11 season. Later that same month theEgyptian Football Association informed the Swiss Football Association that theywould not be issuing the ITC since El-Hadary was still contracted to Al-Ahly.After Al-Ahly announced their refusal to allow El-Hadary’s transfer, El-Hadarythen took it upon himself to declare his termination of the contract. Hereferred to an alleged promise made by Al-Ahly that the club would allow histransfer to Europe. In the proceedings thatsubsequently followed before the FIFA Player’s Status Committee, the Committeeruled that the Swiss Football Association was allowed to register the playertemporarily. The CAS on the other hand ruled that the player’s behaviouramounted to a breach of contract, thus awarding Al-Ahly a compensation of$ 796,500. To determine this amount, the CAS took into account theplayer’s respective salaries (from Al-Ahly and FC Sion) for the remainingcontract term, as well as the loss of the opportunity of securing a transferfee for the player. The latter was determined with reference to the initialtransfer offer of $ 600,000 made by FC Sion as well as the sum same amountoffered in respect of the further transfer of the player by FC Sion.
e. Morgan De Sanctis
Andlast, but not least, the case of goalkeeper De Sanctis has gained immensepublicity. De Sanctis had signed his first contract with Udinese Calcio in 1999and had repeatedly renewed it, the last time being in September 2005 for afurther period of 5 years. In the summer of 2007 after the season had ended, heinformed his club that he would be taking advantage of Art. 17 FIFA RSTP andthereby terminating his contract. Shortly afterwards he signed with the Spanishclub, FC Sevilla. His contract with FC Sevilla contained a clause whichprovided for a € 15,000,000 fee to be payable for the player in the eventthat his contract is prematurely terminated. The CAS (CAS 2010/A/2145, 28February 2011) awarded Udinese compensation amounting to € 2,250,055. Theobjective of Art. 17 FIFA RSTP is to put the injured party (i.e. the formerclub) in the position that it would have been in had the contract beenperformed properly (“positive interest”). In order to determine the amount ofcompensation, the CAS took into account the cost of substitute players as wellas the lost opportunity of securing a transfer fee for the player, since theCAS considered it rather difficult to determine a theoretical transfer value.The contract clause regarding the € 15,000,000 fee was explicitly nottaken into account, not even under the category of a “sports characteristic”.
f. Consequences
The aforementioned decisions show that there are no hard or fast rulesand no price tag for breach of contract under FIFA rules. This can also beshown by a comparison between the different ways of calculating thecompensation in the abovementioned El-Hadary and De Sanctis cases, using thefollowing variables:
w = player market value
x = salary for outstanding contract term
y = expenditures saved
z = addition/deduction after overall evaluation/ sports characteristic
a = preliminary compensation
b = final compensation
InEl-Hadary the following formula was used to determine the compensation:
1. w + x – y = a
2. a +/-z = b
In De Sanctis thefollowing formula was used to determine the compensation:
1. x – y = a
2. a +/- z = b
So, ineffect, a player has no (legal) certainty that he will be successful interminating his contract by using Art. 17 FIFA RSTP. This is because, on theone hand, the player’s market value will not necessarily be taken into accountand, on the other hand, the judges may award an additional sum to represent apure penalty or fine or may even reduce the compensation sum with reference tothe “special characteristics of sports”.
On theflipside of the coin, the question for clubs is how they can effectivelyprotect themselves from defaulting players or at least obtain adequatecompensation. Though clubs are usually paid training compensation, it isadvisable to minimise the risk of a breach of contract by expressly stipulatinga contractual penalty clause into player contracts. Such a penalty clauseshould be defined and exact. It would not infringe German law (§ 307 BGB) sinceit does not constitute an unreasonable disadvantage for the player. On oneside, the club has a legitimate interest in the player fulfilling his validcontractual obligations and equally, on the other side, the player has nolegitimate interest in breaching his contract. After all, it is in the player’sown hands whether or not he will fulfil his contractual duties. The bi-annualtransfer windows could serve as a useful point of reference when it comes tothe question of determining the amount of compensation. Thus, a contractualpenalty fee could consist of up to six months’ gross salary. Indeed, the Germanemployment tribunals have held that a fixed contractual penalty fee of onemonth’s gross salary per violation is a valid penalty amount, and so one could arguethat a higher fine ought to be acceptable in the case of a long-term contractwhich does not allow ordinary termination. This may be set out by way of thefollowing clause:
In the event that the Player does not commencehis contractual duties or prematurely terminates his contract without goodcause in breach of this Agreement, he shall be obliged to pay a contractualpenalty fine of (up to) six times the amount of one months’ gross salary asprovided in paragraph … of this Agreement. This clause shall be withoutprejudice to the rights of the club to claim further adequate compensation ordamages available to it.
6. Summary
Evidently, there areseveral pitfalls to watch out for during the player transfer process, which aremainly due to the different governing laws that are applicable in this context (international/nationalfootball association law, international law, national employment law).Therefore a club manager has to consider many aspects relating to both licencesand contract. As a result of the short transfer windows, there is often a greatdeal of time pressure during the final phases of the transfer. Usually most ofthe aforementioned negotiations (transfer agreement, termination agreement,player contract, agent/broker agreement) don’t take place after one another butinstead parallel to each other, before the issue of licensing (TMS/ITC,national licence) – which is essentially only a formality – is dealt with. Aclub manager would therefore – as is the rule – be wise to seek internal(particularly administrative) and external (e. g. legal) support and advice. Asgenerally is the case in football itself, it all comes down to excellentteamwork. As Johan Cruyff once remarkably said: “It’s easier to win a game if you play well than if you play badly.”
Dr. Johan-Michel Menke, LL.M., Rechtsanwalt, Salaried Partner, Certified Employment Lawyer,
Heuking Kühn Lüer Wojtek, Neuer Wall 63, D-20354 Hamburg,
T +49 (0)40 35 5280-0, F +49 (0)40 35 52 80-80,
[email protected]
